Benefits of ASG and LOF salvage service agreements
28th July 2021
Regular columnist Simon Tatham provides insight into the Admiralty Solicitors Group salvage agreements and arbitration proceedings
There was consternation as to whether Lloyd’s would continue to operate the Lloyd’s Salvage Arbitration Branch (LSAB) and therefore support Lloyd’s Open Form (LOF). Lloyd’s has since confirmed its commitment to LSAB and LOF.
There have also been concerns whether the salvage industry is financially viable with overall revenues, according to the International Salvage Union (ISU)’s 2020 statistics, much down.
The number of signed LOFs reported by ISU members rose to 40 from 35 in the previous year and revenues banked during the period also rose, from US$49M in 2019 to US$60M in 2021. Although these figures, albeit quite low historically, may be distorted by just a single large case and there can be a time lapse between the services and reward.
However, these statistics do not represent the full picture. As the ISU annual review points out, LOF accounted for less than a quarter of its dry salvage emergency response cases and merely a third of the related ISU revenue.
Of course, not all salvors are ISU members contributing to these statistics. But this does beg the question, where does the balance of the ISU’s dry or emergency response salvage revenue derive?
There is one answer that is quietly below the radar but well known both to the smarter operators and to the property market underwriters who insure ships and their cargoes: the Admiralty Solicitors Group (ASG) 3 agreement.
The purpose of ASG 3 is to allow for claims or disputes arising from the provision of salvage services to be dealt with in arbitration*. It enables parties to resolve a dispute outside of court and without a signature to LOF or any alternative form.
The type of arbitration which this agreement initiates is close to the procedure applied under LOF, and the arbitrator will usually be chosen by the parties from the Lloyd’s panel of arbitrators.
Unlike LOF, the parties do not, in entering this agreement, admit that services in salvage were rendered. The beauty of the pro-forma document is that it can be amended by the parties to cater for the peculiarities of any case.
Take for example, a case where tugs are engaged to assist a vessel in a routine operation but due to unforeseen circumstances the vessel becomes endangered. Then, by prompt intervention of the tugs, a collision is avoided or the vessel is refloated before becoming stranded on a falling tide.
Shipowners may be reluctant to commit to an LOF in those circumstances (though it can be signed after the event) and be unwilling to accept that the degree of danger qualifies the services as being salvage. Or they might contend that the tugs were under a legal duty to assist in any event which may involve the application of local law.
Whatever the merits, the parties will wish to avoid the cost and delay of arrest and may be hesitant to submit to the local jurisdiction where salvage expertise is lacking and both the procedure and outcome uncertain.
Underwriters will prefer quick cost-free provision of security in a simple recognised format (ASG 4 – Common Law Salvage Undertaking) which will be acceptable to tug companies.
There has been a perception in the past that salvage awards can be high in London, in part arising from the fact that the large cases tend to gravitate here under LOF.
But as around three quarters of such claims in London settle amicably, compromise is readily achieved. However, where a decision is required, smaller claims may also be resolved by a simplified fixed-cost, documents-only procedure before an experienced salvage arbitrator.
Alongside the more complex professional salvage cases that are resolved under LOF, many day-to-day salvage claims around the world, as well as some of more controversial or legally complex claims, are resolved thanks to ASG 3.
These ASG 3 cases can be very important to tug companies and occasionally to salvors. It enables their investment in salvage capability and their readiness to intervene to be recognised and provides a procedurally sure and relatively simple way in which to enhance their income in a manner acceptable to those who pay, namely the global marine insurance market.
Finally, these cases are invariable interesting to deal with and I expect they will remain part of the regular diet of the Admiralty fraternity in England for years to come, our fellow ASG member firms being highly conscious that all their clients are looking for the same thing: balanced and fair outcomes and cost-effective resolution.
Simon Tatham is a partner of Tatham & Co and founder member of the firm’s TugAdvise. com service
Reproduced with kind permission of International Tug & Salvage